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Unspent billions of Chilean defense fund remain a mystery

May 21, 2013 at 4:39 PM   |   Comments

SANTIAGO, Chile, May 21 (UPI) -- More than $4 billion of cash reserved for Chilean military procurement remains unspent because of mysterious workings of funding arrangements between the Latin American country's state mining sector, the government and the armed forces.

Chilean law entitles the military to 10 percent of the proceeds of copper exports. Repeated government efforts to get rid of the law, entrenched in the 1880s and amended many times, haven't managed to achieve a clean transition.

The military copper fund accumulated under law No. 13.196 is said to total more than $4 billion but continued wrestling between government and Parliament has meant the money remains largely unspent.

The fund received at least $1.27 billion in 2012 and $1.49 billion in 2011 as its share of the proceeds from Chile's copper sales, data from state mining company Codelco indicated.

The current total of the copper fund could be $4.2 billion, Infodefensa said on its website.

"Politics have a way of frustrating defense spending, even when there's plenty to go around. The government faces pressure to spend more on education, and reconstruction from the massive 2010 earthquake remains a big project," the Chile defense blog said on its website.

Former President Michele Bachelet tried to wrest control of the copper fund and handed it over to the Finance Ministry in 2009. President Sebastian Pinera followed up with more measures in 2011 to expedite the fund's transfer. But the process remains snagged by bureaucracy, military resistance and politics.

As a result, the so-called Restricted Law on Copper and its effect on copper funds remains shrouded in secrecy with neither the government nor congress seen able to access the cash, much less take control of allocations made independently by the army, navy and the air force, analysts said.

Until the fund is fully under parliamentary oversight, opposition critics say, Chile cannot call itself a true democracy.

Although the military is said to receive the copper funds in separate accounts for the army, air force and the navy, those accounts remain outside parliamentary oversight. Officials say some but not all of the hurdles have been crossed and a breakthrough is likely.

The Chilean military's attempts to procure defense equipment in turn have been thwarted in the struggle to pry open the secret copper fund accounts to parliamentary scrutiny.

Government intentions on military cash outlays remain unclear. Officials announced plans to spend $7 billon-11 billion on defense through 2025. More recently officials revised those estimates downward, indicating the government would spend more on education.

Pinera has suffered in approval ratings because of student riots over slow progress in education reforms. There's now greater urgency to implementing education reforms to prevent another outbreak of student protests that lead to unpopular confrontations with police and security forces.

Chile's structured education has been criticized for benefiting a wealthy minority and increasing the debt burden on middle class and low-income families wanting higher education for their children.

Pinera is also having to grapple with reduced earnings from copper exports as prices of the metal continue to decline, forcing Codelco to cut back on output and exports. China's economic slowdown was blamed for the shortfalls in anticipated earnings.

Declining copper exports have also increased pressure on Pinera to be more decisive in completing control of the military's copper fund and for more transparency in funding allocation for defense spending.

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